Delaware Federal Court Sanction Rulings Offer Lessons for Patent Plaintiffs and Defendants

Kaminski_Jeffri_LRFeatured Expert Contributor – Intellectual Property (Patents)

Jeffri A. Kaminski, Venable LLP, with Briana Rizzo,* Venable LLP

*Editor’s Note: With this post we welcome the participation in The WLF Legal Pulse of Featured Expert Contributor on patent litigation and policy issues, Jeffri Kaminski.

The Delaware District Court, historically known as a venue friendly to patent holders, appears ready to fight back against the litigation strategies of Patent Assertion Entities (PAEs), or “patent trolls.” While the court has traditionally disfavored imposing fees and sanctions on unsuccessful Plaintiffs [1], several recent cases signal a major shift in the judicial perspective on what District Court Judge Richard G. Andrews calls “misleading and prejudicial” tactics. [2] Most notably, Parallel Iron LLC v. NetApp Inc. and Summit Data Systems, LLC v. EMC Corporation et al solidify a growing trend in the Delaware Circuit of both judicial discontent with PAE litigation tactics and a willingness to sanction such behavior.

A trend on the rise

The U.S. Supreme Court released its groundbreaking Octane Fitness, LLC v. Icon Health & Fitness, Inc. decision on April 29, 2014, lowering the standard of 35 U.S.C. § 285 “exceptional” behavior and enabling prevailing parties to obtain attorneys’ fees for behavior that merely “stands out from others with respect to the substantive strength of a party’s litigating position […] or the unreasonable manner in which the case was litigated.” While several cases immediately following Octane Fitness retained a traditional refusal to award fees, on September 12, 2014, Judge Andrews released three pro-defendant opinions on the matter, the most significant being Parallel Iron LLC v. NetApp Inc.

In Parallel Iron, the Plaintiff maintained for thirteen months infringement claims against NetApp regarding the company’s parallel Network Filing Systems (pNFS), until it recanted those claims in favor of entirely different patents and persuaded the Defendant to sign a sublicense and motion to dismiss with prejudice. On these facts, Judge Andrews found that not only did the Plaintiff fail to properly research its claims, but also that it “strung the Defendant along” on claims that it had “no intention” of pursuing, and that it utilized a licensing agreement and case dismissal to extract profit from frivolous litigation. Even more significantly, though the Defendant had not “prevailed” as required for § 285 attorneys’ fees, Andrews asserted under pure discretionary authority that the Defendant was nonetheless entitled to $480,000 in attorneys’ fees because the Plaintiff had litigated “in bad faith, vexatiously, and wantonly.” Judge Andrews also stated that this assertion of judicial discretion was undertaken “not only to compensate NetApp, but also to deter Parallel Iron from continuing to litigate in such a manner […].”

Less than two weeks after Judge Andrews’ powerful message in Parallel Iron, Delaware District Court Judge Gregory M. Sleet released a similar decision granting $1.39 million dollars in Section 285 fees against a PAE in Summit Data Systems LLC v. EMC Corporation et al. In Summit Data Sys., Plaintiff waited eighteen months and extracted several co-defendant settlements before revealing to the Defendant that its sole allegation was factually impossible, as the Defendant’s supposedly infringing software use was sanctioned by a preexisting licensing agreement. As such, Judge Sleet found that, much like Parallel Iron, Summit asserted “objectively unreasonable” claims without showing any meaningful investigation into their validity, using these claims to “extract quick settlements that were dwarfed by the costs to litigate.” Further, in a striking statement against PAE tactics, Judge Sleet asserted that regarding entities “in the business of patent licensing,” “the court finds [the] practice of extracting settlements worth a fraction of what the case would cost to litigate supports a finding of exceptionality.”

What can we learn from these cases?

When looking at the trend of judicial action begun by Octane Fitness, it is clear that judges are reacting against a particular pattern of behavior found in the PAE community. By understanding both the practices identified with PAEs and the ways that plaintiffs and defendants can adapt to these judicial perspectives, the patent community can move forward intelligently and effectively.

Four traits that have been most often discussed by judges in reference to PAEs include: insufficient pre-trial claim investigation [3], baseless claims [4], deceptive litigation tactics, [5] and case settlement and dismissal to avoid fees. [6] By identifying and understanding these behaviors, plaintiffs can more easily avoid flagged tactics by: conducting well-documented pre-trial investigation including thorough vetting of claims; communicating with the Defendant about material documents or facts; and finally, preventing a pattern of dismissal and settlement with the Defendant. By acting in such a way, plaintiffs in the patent world will raise fewer red flags, and will litigate more successfully. On the other hand, defendants in such cases should see this precedent as a golden opportunity. Specifically, defendants may find in this new trend valuable leverage against patent holders, and may even use it to decrease discovery costs, streamline the litigation procedure, and ensure favorable settlement.

Delaware jurisprudence, sharpened recently by Parallel Iron and Summit Data Sys., is sending a clear message to PAEs: play fair, or pay the price. Judges are making it clear that not only are they fully aware of the tactics being employed by PAEs, but that they are willing to sanction such behavior. By learning from this growing trend, the patent community can utilize better litigation tactics on both sides of the table to succeed on a more level playing field.

NOTES

[1] See, e.g., No. 08-408 (D.I. 203); No. 11-799 (D.I. 130; No. 11-717 (D.I. 226); No. 11-271 (D.I. 190).

[2] No. 12-769 (D.I. 91) at 10.

[2] See, e.g., No. 11-175 (D.I. 178) at 4; No. 13-537 (D.I. 61) at 19; No. 12-769 (D.I. 91) at 12-13; No. 10-749 (D.I. 260) at 7.

[4] See, e.g., No. 11-175 (D.I. 178) at 7; No. 13-537 (D.I. 61) at 21; No. 12-769 (D.I. 91) at 11; No. 10-749 (D.I. 260) at 7, 8.

[5] See, e.g., No. 11-175 (D.I. 178) at 7; No. 13-537 (D.I. 61) at 25; No. 12-769 (D.I. 91) at 15; No. 10-749 (D.I. 260) at 7, 8.

[6] See, e.g., No. 11-175 (D.I. 178) at 7; No. 12-769 (D.I. 91) at 4; No. 10-749 (D.I. 260) at 8.

*Briana Rizzo is an associate in Venable’s Intellectual Property Litigation Group.  Her practice focuses on assisting clients with all forms of intellectual property litigation, including copyright, trademark, patent, and trade secret issues.

3 thoughts on “Delaware Federal Court Sanction Rulings Offer Lessons for Patent Plaintiffs and Defendants

  1. Pingback: Concurrence in Federal Circuit’s “Ultramercial” Ruling Sends Pointed Message to Patent Litigants | The WLF Legal Pulse

  2. Pingback: Playing Field May Continue to Shift for Patent Litigants on Willful Infringement | The WLF Legal Pulse

  3. Pingback: Supreme Court Holds that Belief Patent Is Invalid Is No Defense to Induced Infringement | The WLF Legal Pulse

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